Inflation! Inflation! Inflation! If you turn on the financial news, there has been a lot of talk about inflation and you may have noticed the items you buy getting more expensive while you are out and about. Since there has been a lot of talk about inflation, I thought it would be a good idea to give you a run down about what it is and how it affects you.
Inflation is a general increase in the prices of goods and services that erodes the purchasing power of your money over time. If you have been shopping for a new car or traveled over the holiday weekend, you have noticed that those items have become a lot more expensive. The more prices rise, the more it will eat into your savings, and you will have to earn more money in your paycheck and saving accounts to keep up with the rising prices of the products that you buy daily.
So, what causes inflation and how to we measure it? Inflation is caused two main ways: demand-pull inflation and cost-push inflation. Demand-pull inflation is when a product is very popular with consumers. This could be caused by a popular Christmas toy that all the kids want. Cost-push inflation is when the supply of goods or services is limited in some way, but demand remains the same. This could be cause by the shut down of factory due to a hurricane destroying it.
There are 3 main indicators that measure inflation. They are the Consumer Price index—which measures a basket of goods the average person buys, the Producer Price Index–which tracks the goods and raw materials companies purchase, and the Personal Consumption Expenditures Index—which tracks a broader measure of goods and services that consumers spend money on like healthcare.
What can you invest your money in to hedge against inflation? The 3 main investments that are considered an inflation hedge are Treasury Inflation-Protected Security (TIPS), stocks, and gold and other precious metals. These assets, along with a well-diversified portfolio, can you help you keep up with inflation and grow your money. If you are not sure if these investments are appropriate for you, you should always consider sitting down with a financial professional.
By: Louis DeVicaris
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.